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TRANSCRIPT
US-China Forum Keynote at Yale (China Economic Forum) – April 5, 2012
[INTRO]
Thank you very much for that kind introduction. I know that you have a big
conference coming up and I had to be out of town, so I was offered the opportunity to
talk to you at the pre-conference keynote (it’s probably a new term, but I’m delighted to
do this). I have a great interest in China because for a good part of my professional life I
have been involved in Asia. So a lot of what I have to say about China is really with the
perspective of my experience in the broader Asian arena. I first went to Asia as a soldier
in 1972 during the Vietnam War and I had a very unusual job in Thailand where I was on
the Thai-Burma border. I was only 21 and it was my first view of Asia and a very
interesting view because even though there was a war going on in Vietnam and a
communist insurrection in Thailand, you could also see this enormous vitality in the
region. It didn’t take very much to understand that once the war was over, there was
going to be an enormous burst of energy and dynamism in Thailand and the surrounding
countries and I never really forgot that.
I returned to Asia about 22 years later when I was an investment banker and
transferred to Japan to oversee Lehman Bros. in the Far East. Part of that time I lived in
Tokyo, part of the time in Hong Kong. China was still pretty much closed. Deng Xiaoping
was in power and China was opening, but in fact the opening had not really caught the
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rest of the world. But being in Hong Kong, I got a lot of opinions about what was
happening in China and I was deeply interested in finding a way to get involved. And
that happened ten years after that when I entered the Clinton Administration as
Undersecretary of Commerce and became deeply involved in the Middle Kingdom
because we were working with Beijing to prepare its entry into the World Trade
Organization. I met a large number of the Chinese leaders and I think many of my
formative views about China were formed then. It was a very exciting time because
these were the first steps of China’s real integration into the world economy.
Summary of Talk
So what I want to do tonight really is to talk about US-China relations. I’m going
to go back into history because I think it’s very important to have a historical
perspective on an issue like this, and I’m going to talk about different phases of US-
China relationships. I’m going to do it very, very fast, and very casually. Then I want to
talk about the present and explain why I think that the past is simple compared to
where we are today and where we’re headed, and why the challenges of the next
decade make past challenges look easy. I’d like then to talk about what I think are some
of the key requirements for policy and I want to conclude with a word about the role of
student exchanges because I know that all of you are a part of that. And then I’ll take
questions.
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Historical Background – Worrying About Japan
A good place to start talking about US-China relations is really at the end of the
19th century. Most of you come from China, so it may not be obvious to you, but the US
is a very young country. When people talk about its foreign relations, they don’t have to
go back very far, because you go back too far, there were no foreign relations at all. It’s
not like China where there have been thousands of years of interacting with other
countries. And for the United States, its official involvement in Asia didn’t really occur
until the Spanish-American War and the US acquisition of the Philippines. Basically the
US took over the Philippines and for the first time it had a physical stake in Asia. Before
that, there were Americans going to China, but they were really on their own. There
were some traders, there were some missionaries, but there was no American
government support; and there was no American government policy other than to try to
help some of the American individuals. But in 1898, when America invaded and
captured the Philippines, suddenly it began to notice everything that was going on in
Asia. Between then and 1914 and the onset of the First World War, the US got very
involved. But it got involved in a couple of ways that were fairly simple. One is it was
very concerned about Japan and very concerned about Japanese incursion into other
parts of Asia. Secondly, it was very concerned about other European countries and
Japan having a monopoly on the China market. We had what we called an “open door”
policy and basically we just wanted to make sure we had access to the Chinese market
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just like everyone else did. And third, a lot of Chinese workers started to come to the US
because at the end of the 19th century, early 20th century, we were undergoing our own
major industrial revolution. The US was growing very fast and we just didn’t have
enough workers and were importing immigrants from both Europe and Asia. But the
key point was that we began to become very discriminatory and we had a very harsh
treatment of immigrants from Japan and China. Not far into the early 20th century, in
fact, we basically barred Asian immigration altogether. And I mention this because
while a lot of people don’t remember this period, it is all part of the fabric of American
relations with China during this period.
Between World War I and World War II, America was even more concerned with
Japanese intentions in Asia. It is very important to realize that a lot of American concern
about China has always been less about China than about other countries having
designs on China. And that inter-war period was very much, when you look at the US
and Asia, it was the United States trying to figure out how to stop Japanese expansion.
It was a lot of commercial activity with China, but for the most part this had nothing to
do with the American government – these were American investment banks and
American entrepreneurs who saw China as a big market, wanted to get in on the
building of railroads and other kinds of projects.
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Backing Wrong Horse in Chiang Kai-shek
During the Second World War, we considered China an ally. Now I say China, but
there were two parties obviously – the Nationalists and the Communists. We had allied
ourselves with the Nationalists. And President Roosevelt actually had a vision that after
the Second World War, China would replace Japan as one of the major powers. We
were focused on Chiang Kai-shek and we poured massive amounts of resources into
Chiang Kai-shek’s backing and into support for him with the idea that after the war, the
Chinese would become one of the four major powers in the world; it’d be the US,
Russia, Europe and China. But obviously in 1949 when Mao Tse Tung won the
revolution, Americans realized that they had placed the wrong bet and in fact I say they
realized it – but they kept supporting Chiang Kai-shek and so we entered this period of
Cold War in which for 30 years or so we considered Mao’s China as an enemy. All of
American policy was really devoted to containing China as it was containing Russia.
China became a big domestic issue in the US because with Mao having won the
revolution. I’m mentioning this because you would have no way to know, but it was a
huge political issue for both major American political parties, as to “who lost China.”
And there was still a lot of support for Chiang Kai-Shek, even though he had been driven
out, even though in reality there was no chance of his coming back. The American
political system went way to one side and anyone who even made conciliatory noises
about relations with Mao was branded as a political heretic.
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Nixon to China – Using China as Leverage Against USSR
This all changed in the 1970s with President Nixon. But it didn’t change because
Nixon had some warm spot for China. It changed because China and the Soviet Union
had split and the US realized that it could use the so-called “China card” to force the
Soviets to do things that we wanted it to do. So Nixon made the trip to China and he
was followed by President Carter who eventually normalized relations with China, but
the big impetus was to use the specter of China as a friend and ally to force the Russians
into a détente and disarmament. By the 1980s, we had normalized relations with
Beijing. In fact, in the 1980s, the US was even selling military arms to China. The US was
helping China on its borders to monitor Soviet movements. The dial had swung way
over. And everything was going quite well.
The Taiwan Issue
You get to the 1990s, but Taiwan was a big thorn in the side of the US-China
relations. China wanted the US not to continue to sell arms to Taiwan; the US claimed it
was defensive arms, but because of the political issue in the US, no administration could
have totally abandoned Taiwan, or give the appearance of abandoning it. Meanwhile,
the Chinese were apoplectic for all the reasons you know – that we were interfering in
their domestic issues. But in the 1990s, in addition to Taiwan, two other issues started
to arise. One was trade. Before that we had no trade with China to speak of. And even
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in the 1990s, that’s when I was in the Clinton administration, I have to say that nobody
anticipated what trade would become. It was relatively important, but nothing like
trade with other Asian countries, certainly nothing like trade with Japan. Nothing like
trade with Mexico, Canada or Europe. But we had a lot of interaction because we
wanted China to get into the World Trade Organization. We had our reasons – we
wanted China to adhere to what we considered to be international rules and China to its
great credit wanted to move in that direction, so those were two countries very much
on the same wavelength.
Human Rights, Followed By Trade
In the 1990s, another issue arose – the issue of human rights – especially in the
wake of the Tiananmen protests. And then in this decade, the agenda started to grow.
Not only trade, when I say trade in the sense of specific trade disputes, but now
currency issues started to evolve and China’s growing political footprint began to create
an agenda that was much larger than anything we had seen before.
So I just want to sort of sum up at this point that for most of the time, US-China
relations consisted of a limited number of issues. And for most of the time, US
motivations to get close to China were as much about Japan or the USSR as it was about
China itself. Also, for all of the time the US was rising to power or was a superpower.
China had a weak hand to play. And for most of the time the US and China bilateral
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relationship was the key axis. China was never part of the global political scene. It
didn’t really participate in multilateral diplomacy in any major war.
Today
So if I look at things today, I see that US and China have a lot in common. I think
this is a source of optimism. On the larger sense, we are both searching for a formula,
an economic and political formula, for growth and for equity. We may be in different
stages of capitalism, but the essential issue of the balance between public and private
interests is a question that both societies are facing. We have a very similar interest in
making a transition in the energy arena with all that entails including the environmental
protection. We both have aging societies with their enormous requirements for a social
safety net. And there are a lot of other things, but these are two countries which,
although they have come from very different directions and although they are in very
different stages of development, there’s a great commonality there.
On the other side, it is very likely that the patterns that each of these countries is
in is not going to be viable in the world that is evolving. The United States all along, not
only with China, but with the rest of the world, has a kind of missionary personality. We
are not only convinced that our way of governing and our kind of economy is superior,
but we feel compelled for reasons that are very hard to define, to take that message
and to proselytize everywhere we possibly can. In the China case, we did that from the
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beginning. The missionaries and the traders, even before the US had the Philippines,
were pushing the American way. And this is simply not going to be viable going
forward. But China also has its complexes, too. Thousands of years of Middle Kingdom
complex in which China feels totally superior to other countries. I don’t think that’s
going to fly in the New World. It’s not just question of dealing with the US or dealing
with Europe, but we’re in a world where a lot of other countries are rising too. India’s
not going to buy China’s view of its own supremacy; Brazil’s not going to buy it; nor will
many others. Also this Middle Kingdom complex in my view carries with it a de facto
sense that either China is in control or China can be a free rider in the system. That is,
other people since they’re not as superior, other countries, they carry the burdens.
That’s not going to fly as well.
So we’ve got two countries here with common interests, but with personalities
that are going to have to change if we’re going to see the kind of progress that these
common needs really require.
I think also that if you look at the last 30 years, the issues that the US and China
faced are relatively easy compared to the ones that are arising now. Today the agenda is
much broader, much more complex. I’m just going to give you a couple of examples.
In the past it’s been very specific trade disputes. China’s subsidizing solar energy.
The US putting countervailing duties on China products. But now, the real issue is the
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shape of the trading system itself. It’s a much bigger question of what are the rules of
international trade. How are you going to encompass countries industrial policies in a
world where commerce is becoming so important and these industrial policies are so
different?
In the past we argued over where currency was vis-à-vis the other. That’s a
dispute now – the yuan vs. the dollar, with the US putting a lot of pressure on China to
revalue. But this is nothing compared to the debate which is emerging which is the
whole shape of the monetary system. And we have the governor of the China Central
Bank talking about new kinds of arrangements for central currencies. That’s a much
bigger issue than anything we have handled before.
We are also going to be dealing with one another’s economies in terms of the
basic model of growth. The US will be trying to put a lot of pressure on China, to
accelerate the model in which growth in China derives very much from domestic
consumption as opposed to exports. The Europeans are too. Now the Chinese have
said that this is want they want to do, but the actual execution of it in a short period of
time is going to be very difficult. So there are issues here that are far deeper and far
bigger than the very specific things that we have argued about before.
Another new fault line is global competition for resources. This is clearly going to
be one of those issues that shapes this century. And just to take one very current
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example – energy. It is very possible that over the next ten or twenty years, the US will
be developing much more of its energy resources in North America and moving away
from its dependence on the Middle East. At the very same time it’s possible that China
will look at the Middle East as absolutely essential to its future. So in terms of shifting
geopolitics, we are going to see resources not just as resource issues, but also as ways
that are going to change the way global politics works.
We have yet to really face military rivalries. And while there is no comparison
today between the military capabilities of the US and China, there is no question either
that China’s military budgets which officially are increasing by 15% or 20% a year and
unofficially much more than that, this is going to change the shape of security issues
going forward.
Non-proliferation, climate change, need for rules for cyberspace; there is just a
very long large range of very difficult issues that are going to bring the US and China
together in a way that has not happened before. So all of that history I talked about will
look simple compared to the era that we’re entering.
And to make it even more complicated, in the past it has always been the United
States that has put forward the new ideas about how the world should be organized.
Those days are over. Whether China wants to or not because of its broad geopolitical
footprint which is getting bigger and bigger, it may well be advancing its own ideas. And
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so we have a whole different situation here where since the Second World War, what
the US said basically most countries fell in line with. That’s not going to be the case
now.
Also I think there’s a psychological element. China clearly a rising power; the US
at least relatively declining. The psychology of this is very precarious because it’s
possible that it breeds either too much confidence in China or too much defensiveness
in the US, and it can very much undermine real rational policy-making. And finally, each
of us has a political system that is I would say to put it charitably, handicapped. The US
is bordering on disfunctionality in terms of being able to make any major decisions. But
China too is in a very difficult spot because it’s not just the current transition, but I think
it is a group of people, a relatively narrow group of people, that is wrestling with a much
more complex world and in a system that is very tightly controlled and it’s not at all
clear that that system can continue to deliver what I think have been very effective
policies for the Chinese people, let alone for the rest of the world as China grows into
that leadership position.
Looking Ahead
So here are a few of the things that I think are very important in terms of policy
imperatives:
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First, we have to have realistic expectations. Speaking just from the US
perspective, I believe China is never going to be an ally of the US, and it shouldn’t be an
enemy. We have to have a ceiling and a floor, and Beijing is going to belong in a
category which is not going to be the same category as Japan or France and certainly not
the same category as China and Russia were in the Cold War. So I think that there’s
going to be a lot of tension, and there should be also a lot of cooperation. We must be
adept at balancing that.
Second, by far the most important thing the US can do, priority one, two, three –
is to revitalize its domestic economy. As long as the energy is being sapped out of the
United States, as long as the middle class continues to decline, as long as we are afraid
of the budget deficits that are coming, we don’t have the resources to fulfill our
potential, our international policies will be really deficient. And so the biggest foreign
policy and issue we face is not with China, and it’s not with any other country, but it’s
with our own capabilities at home. And I believe we have it within our power, but you
wouldn’t know it if you’ve watched the policy of recent administrations and congresses.
In the China case, I believe it has to move much faster with the economic reforms
that it talks about. The plans are really good and no one could fault the Chinese for not
understanding exactly what should be done. But we’ve seen a lot of these plans at the
very same time that the reforms have been slowing and in some cases being unwound.
I was just in China for a couple of weeks with my students and it was very clear from
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some of the things that we heard that the pace of reform is moving in the wrong
direction. I don’t pretend this is easy any more than it’s easy for the US to revitalize
itself, but we have a situation where both countries have got to make far-reaching
internal reforms that are politically very, very difficult to do.
I also think that it was not so long ago that people talked about a G2, a group of
two. The US and China were basically so important, so the argument went, that they
would be the inner core of everything that happens. I mistakenly suggested that once in
something that I wrote about five years ago. Well, that’s not going to be the case. In
fact, I would say that again from a US perspective, the bilateral relations with China is
less important than the multilateral structure. If the US wants to have influence on
China, it will not be directly but by gaining a global consensus which China joins. Having
as part of that consensus not just Europe and Japan, but big emerging markets – that’s
what will get China to listen. And this is a big change for the US, which is used to
throwing its weight around and acting unilaterally or bilaterally.
We’ve got to guard against what I would call flash points. These are things that
happen with very little warning and can throw everything off and create a highly
dangerous situation. It’s not out of the question that there is a major domestic
upheaval in China. I can’t tell you how it’s going to happen; I don’t think anybody can.
But it’s certainly possible in this age of communication that an incident, a
demonstration, some particular act in some part of China, spreads discontent very, very
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fast, much faster than the government would anticipate, and that it would invite a very
violent government reaction. It’s not out of the question that a cyber-attack let’s just
say on the New York Stock Exchange, which just knocks the Exchange out, comes from
somewhere in China and nobody knows exactly from where - was it the government,
was it a private group, did the government put the private group up to it, was it the
PLA? Nobody knows, but this kind of incident could paralyze the American economy in
minutes, and could create a major firestorm. It’s not out of the question that in the
naval competition of Asia, there is a confrontation that is accidental. The main point
here is that the two countries have to do something which I don’t believe that they’re
doing. They’ve got to really come to grips with all of the things that might happen and
have a system of communication to prevent a miscalculation. In the cold war, we had a
red phone with the Soviets that allowed the President to just pick up the phone – there
was no dialing or anything and he got the Premier in Russia. We were afraid that some
rogue bomber, some rogue general would launch something and we wouldn’t know
what it was and we wouldn’t have any time other than to retaliate right away. And all
I’m suggesting is I think that both the US and China are going to act rationally until or
unless something happens that nobody calculated and it invites a very quick irrational
response. And to me that is the biggest danger that we face.
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Student Exchanges - Invaluable
In this situation, a very complex situation, I think one really piece of great news is
that student exchanges have really mushroomed and that the growth of Chinese
students entering the US is really phenomenal – most people don’t realize just how fast
it has increased and also that Chinese students are studying the things that are so
important – math, engineering, science, technology – not only to China, but to the
United States as well. I only have a couple of observations to make. I don’t quite know
how to evaluate this; I certainly don’t think that just because you study in the US, that
you form one set of views. I think it’s also possible that you come to the US and leave
feeling much more antagonistic to the US than when you came. But the most important
thing is that you’re here and that you see the system, and that you make contacts, and
that you have a sense of what American thinking is. I think that’s great for China; I think
that’s great for us. I do think that the US is falling short in two areas. One is it has to
figure out a way to send more students to China. Speak of a trade imbalance – I mean
this is really atrocious. And we should be sending as many students as the Chinese are –
I think that would be to China’s benefit as well as to the US. The other is, and this may
not be so fair, but I think an awful lot of students from outside the US would like to stay
here, would like to work here, stay here for a period of time – many more than say they
would. And since we in the US are in need of great minds and experience and skills,
which all of you bring, if I were in the government and I had a voice – if I were president
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or were advising a president, the first day I would say, “Everybody gets a visa who gets a
graduate degree here.” And I think we would create the biggest reverse brain drain that
the world has ever seen. And there will be a lot of screaming, but looked at very
selfishly from the US, this would be one of the smartest things that we could possibly
do.
Optimistic About the Future
So let me conclude by saying that I’m cautiously optimistic that the US and China
are going to work things out. I have two reasons. One is I believe everybody recognizes
the stakes. I don’t think there is any person in any area of responsibility that doesn’t
understand that the United States and China are at the core of what the world is going
to be and that if there is a miscalculation, it’s not just our two countries that will suffer.
So that may sound mundane, but it’s not a small thing. History shows that
miscalculation, inability to really understand what’s valuable and what isn’t, inability to
understand how big the stakes are has been very characteristic of leaders. And the
other thing is that since President Nixon met Mao and since Nixon dealt with Deng, both
countries have handled themselves pretty well. I say pretty well, but I should say “really
well.” We’ve had a lot of disputes; we’ve had a lot of chances for big
misunderstandings. For example, the events in Tiananmen could have thrown the
whole thing out of whack and it came very close. But I think that both governments
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have done a really good job in keeping things within bounds and on track and I think
that the future governments will certainly try to do the same.
Everybody in this room has both a stake and I think a responsibility in their own
ways of making sure that our respective societies give those governments a hand.
Thanks very much, and I look forward to your questions.
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